Will Tew

This month’s Cato Unbound series focuses on the constraints of money in politics, how businesses respond to opportunities for rent-seeking, and prospects for the future of free market advocacy.

In his initial essay, CEI Founder and Chairman and Director of CEI’s Center for Advancing Capitalism, Fred L. Smith, Jr., makes the case for increased business involvement in politics on the side of free markets. He suggests that academics and intellectuals sympathetic to capitalism should consider how their work affects the narratives about business that frame the general public’s views. Public choice economists, in his opinion, may have actually contributed to the decline of principled businessmen and the rise of crony capitalists.

You can read see the entire series here, or go directly to Fred’s essay here.

Post image for At Brookings, Susan Crawford Fostering Internet Competition

Yesterday, the Brookings Institute held a panel that purported to discuss “Fostering Internet Competition”. But who is to do the fostering? Federal regulators, of course. The three panelists, Susan Crawford, Spencer Waller, and Douglas Rushkoff, rehashed familiar arguments aimed at policy scarecrows by would-be regulators when discussing tech and telecom regulation.

Unless government steps in, the argument goes, walled gardens will trample the net. Deserving Americans will never get Internet access. They’ll be dependent on cruel, monopolistic ISPs who dispense access like a feudal lord dispensing his favor. Innovation and experimentation will end.

A lot of this seems like a big panic—a “technopanic,” as Adam Thierer, telecommunications policy expert at the Mercatus Center, puts it. It seems to derive from the technoscenti’s realization the median Internet user today, besides being completely ignorant of even the simplest technical aspects of the net, just doesn’t care much about the things many early adopters hold dear. Calls for government protection of the values of the net’s early days are a response to the ever starker realities of the Eternal September.

If a successful Internet-based platform looks like a walled garden, chances are Crawford wants to stop it. So what if users like the functionality and ease of use that comes with carefully cultivated app stores? Such ecosystems undermine the very core of the net. God forbid an ISP experiment with new pricing arrangements or data policies. Anti-competitive practices like that destroy the global forum’s fundamental end-to-end nature! If something looks kinda-sorta like it maybe, just might be close to running afoul of some FTC or FCC regulations—including regulations that exist solely in academics’ minds—we must pounce on it to preserve the open Internet.

For an event about “fostering Internet competition,” there was hardly any talk of reducing barriers to entry, of freeing copper-based providers of the onerous regulations that hamstring their ability to compete with cable- and fiber-based providers, of the changing nature of broadband markets, or of the desperate need for humility when, with the clumsy tools we have, we think about further regulating such a vital sector.

The panelists realize mobile broadband adoption is exploding an amazing rate but demand we extend wired connections to those without. Could it be mobile broadband providers actually may be competing with wired broadband providers?

The panelists also tout universal broadband service as a necessary step to securing American dominance in information technology but also demand regulators make markets more competitive. But wasn’t it the desire for universal service that helped justify Bell’s consolidation and monopolization of the telephone market in the first place? And don’t the biggest telecom firms reap the bulk of universal service dollars? Achieving universal broadband service while “fostering” competition can happen only if we reinvigorate dying “open access” rules – which, by the way, are a main reason DSL isn’t the competitor Susan Crawford wishes it were.

Like many Internet users, I’m sympathetic to the panel’s stated intentions. I like “the open Internet.” I like to collaborate and to share  information with millions of strangers all over the world.

But I don’t think differential pricing or vertical integration between ISPs and content providers spell doom for the open Internet. Rather, these developments can add to our experience. If they’re tested in a vibrant marketplace, they’ll succeed or fail on their own. The real danger is inviting the government in to regulate, to control the market and pick winners and losers. Although yesterday’s panelists talked a good game about defending Schumpeterian creative destruction, they assumed today’s dominant players didn’t emerge out of this cycle. But if policy makers and academics think they can outsmart market processes, their efforts to defend them will surely fail.

Post image for Celebrate National Cybersecurity Month!

The summer may be over, but don’t put the barbecue away yet — the president just declared this October “National Cybersecurity Month.” It’s the latest maneuver in the Obama administration’s campaign for better cybersecurity. After Congress failed to pass cybersecurity legislation earlier this year, rumors of an executive order on cybersecurity soon surfaced.

These rumors were confirmed when a draft version of the executive order was leaked in mid-September. A few days later, a letter from John Brennan, the president’s chief cybersecurity advisor, to Senator Jay Rockefeller, co-sponsor of the Cybersecurity Act of 2009 and the Cybersecurity Act of 2012 and the Senate’s biggest proponent of increased cybersecurity measures, admitted that the White House was formulating an executive order.

When the draft order was leaked, many questioned the White House’s intentions. The order was extremely vague, containing few details about the actual plan for cybersecurity. In fact, most of the order discussed the creation of various commissions to oversee the implementation of the order and assigned deadlines for the commissions’ compliance.

What was clear in the draft, however, was the administration’s seeming lack of concern for privacy. There were two mentions of civil liberties in the draft. One was a rather cursory assurance that the order was to be carried out “in a manner consistent with applicable law, presidential directives, and federal regulations, including those protecting civil rights and civil liberties”; the other was an equally cursory mention of protecting the “the privacy and civil liberties of the American People” in a list of goals the order was to accomplish.

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Post image for Japan’s War On Copyright Infringment

Japan is one-upping the U.S. when it comes to draconian copyright enforcement. The BBC reports that an amendment to Japan’s copyright law approved in June goes into effect today. The amendment imposes criminal penalties of up to two years in prison on people who illegally download copyrighted works. This law, of course, aims to deter potential downloaders and to protect the ailing Japanese entertainment industry. Both aspects of this policy — the targeting of downloaders and the possibility of imprisonment — raise interesting questions.

Targeting downloaders is difficult, as the U.S. recording industry discovered in the first half of the 2000s. Downloaders number in the millions, making effective identification and prosecution costly, and public sentiment isn’t likely to smile on overzealous industry litigation. It’s much cheaper to sue people who host infringing material or provide services that facilitate file sharing. Plus, if you can take down a file sharing service like Napster, you prevent all of its users from infringing with the service, rather than just stopping one user at a time. This is the strategy rights holders have adopted for the most part in the U.S. The danger of these lawsuits is that they endanger services less directly involved in facilitating infringement, with the ultimate consequences of chilling legitimate uses of the technology and strangling the development of new technologies which stand on shifting legal ground.

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A string of mistaken, high-profile takedowns has caused some talk about the services video hosting sites like Ustream and YouTube use to police livestreaming content. YouTube’s take-down of the livestream of the NASA Curiosity rover’s landing was the first of these incidents. Subsequently, YouTube blocked the stream of Michelle Obama’s speech at the DNC, and Ustream cut off sci-fi author Neil Gaiman’s speech at the Hugo Awards, apparently for showing licensed clips from Doctor Who.

Sites like YouTube and Ustream use programs designed to detect copyrighted material. If the “bot” detects what it believes to be infringing material it shuts the video down. This, as the EFF points out, exceeds DMCA requirements. The DMCA requires that sites process takedown requests from copyright holders. It does not require sites to proactively police livestreams which have not been the subject of a notice from a copyright holder.

What we’re seeing shouldn’t be all that surprising. Processing takedown requests from copyright owners (especially in the magnitudes large sites must deal with) is expensive. YouTube uses its ContentID system to automate the process of notice and takedown, and to give copyright holders the ability to monetize infringing content posted to YouTube. The traditional notice and takedown system is even more poorly suited to dealing with live-streams, where copyright holders desire an immediate response. Utilizing a program which automatically detects copyrighted materials cheapens the cost of enforcement for content hosts.

Unfortunately, these recent examples show how the quest to enforce copyright can affect legitimate users. The notice and takedown scheme was already applied too broadly, and it’s the same story with automatized takedown. Fair use, as the EFF says, is hard to code for.

Worse, such bots are likely to stay. The consequences of a mistaken take-down for the host are extremely small, and for the most part will be limited to criticism from users. Such criticism isn’t always ineffectual — Ustream suspended its bot service after the Hugo Awards takedown, but think about all of the other streams which have been terminated, but were watched by only a handful of people.

It’s hard to balance efficient copyright enforcement while recognizing and protecting fair use. But as things are now, over-enforcement copyright claims is less expensive than under-enforcement, and automated takedown is here to stay. Hopefully the attention being focused on them will force a refinement in the algorithms used to detect infringing content.

The Huffington Post reports that the Department of Justice is fixing to slap a lawsuit on Wells-Fargo for “allegedly preying upon African American borrowers during the housing bubble and steering them into high-cost subprime loans,” which seems a little strange, considering that this was the goal of certain government policies leading up to the subprime crisis.

In the 1990s, the Clinton administration pushed for increased homeownership among traditionally under-represented groups. The Department of Housing and Urban Development released the “National Homeownership Strategy” in 1994. The plan for increasing homeownership includes this ominous statement:

For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership.

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Amazon.com is standing strong against California’s attempts to extort money from the online bookseller. Just a few days ago, Governor Jerry Brown (whose aura smiles and never frowns) signed a bill into law aimed at extracting taxes from online retailers. As it is now, the state requires consumers to keep receipts of online purchases, calculate sales tax on those purchases, then send a check to Sacramento. Obviously, this policy proved difficult to enforce.

California’s Board of Equalization (the sinister-sounding body charged with collecting the state’s sales tax) issued a stern warning to Amazon and its comrade-in-arms Overstock.com: pay up or we’re coming after you. California’s case against the retailers rests on going after affiliates and subsidiaries in the state. Amazon has already begun cutting affiliates like gangrenous limbs. California still thinks the law will work; fortunately, they might be wrong, as a Declan McCullagh of CNET writes:

The only problem for enthusiastic politicians and tax collectors is that the new law might not be entirely, well, legal.

In 1994, a California appeals court rejected state tax collectors’ arguments when they tried a similar approach. The case involved a Colorado-based company, Current, which sold greeting cards, gift wrapping paper, and so on through the mail. It had no contacts with California.

Current’s parent company, Deluxe Corp., did do business in California. The state Board of Equalization, operating under the theory that the finer points of corporate structure weren’t that relevant, levied $344,088 in taxes on Current.

The appeals court tossed out that argument, saying that courts in Pennsylvania, Illinois, and Connecticut had considered similar cases and had all ruled against the tax collectors. Those decisions were “persuasive,” a three-judge panel unanimously ruled, and Current and Deluxe “did not have integrated operations or management” and were “separate and distinct corporate entities.”

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You might’ve read about the unintended consequences of Georgia’s crackdown on undocumented workers. Well, the same thing is about to happen in Alabama. A few weeks after Governor Bentley’s signing of a bill that will attack undocumented workers, Hispanic immigrants are already fleeing the state. The Alabama law is one of the harshest in the recent spate of anti-worker and anti-business legislation. It criminalizes assisting undocumented workers and imposes harsh penalties on businesses employing them. Businesses will be forced to use the intrusive and wasteful E-Verify system, putting immigration enforcement costs on entrepreneurs. It makes all public officials into immigration agents too by requiring them to constantly enforce the law. More disturbingly, it allows for the arrest of individuals suspected of being in the country illegally, effectively making Alabamians guilty until proven innocent.

Practically, the law is just as stupid as Georgia’s. After tornadoes swept through the state, devastating large areas, including the city of Tuscaloosa, you’d think rebuilding would be a priority. But apparrently not if cheap, skilled, undocumented workers are doing the rebuilding. Contractors are predicting labor shortages, which will drive up the price of reconstruction. In a state that already suffers from tornadoes and hurricanes, making it more expensive to live in Alabama doesn’t sound like the brightest idea.

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Post image for Tyranny in Farmville

Two days ago, the advocacy group Consumer Watchdog filed an anti-trust complaint with the FTC seeking an investigation of Facebook’s allegedly anti-competitive practices. These incude Facebook’s plan to implement new rules for game developers using its platform and Facebook’s deal with the largest social gaming developer, Zynga, Inc.

With a 2012 IPO looming, Facebook has been looking to revise its policies.The new rules prohibit developers from charging lower fees for virtual goods outside Facebook. The social media company would also require developers to exchange with users through Facebook Credits, Facebook’s virtual currency. Third, Facebook would deduct 30 cents of every dollar from payments made through the system. Consumer Watchdog goes so far as to say that Facebook is seeking a monopoly.

But are Facebook’s policies really that evil? Are Americans going to see “Mark Zuckerberg’s face replacing George Washington’s on the dollar bill. Or rubbing out all the dead presidents on every bit of American currency,” as Consumer Watchdog says? Probably not.

On the first count, Facebook’s new rule seeking what almost amounts to exclusivity might be tight-fisted, but it’s not that bad. It won’t dictate prices in browser-based games, and I doubt it will even dictate prices in social gaming. Even if every game developer used the Facebook platform, there would still be competition among games and developers. Fortunately, that scenario isn’t even realistic; not every developer works through Facebook. Many developers work outside the Realm of Zuckerberg, and the more Marky Z. tries to control his content providers, the more they will begin to move away.

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Who’d of thought it: cracking down on immigrant workers hurts the economy? Georgia’s learning the hard way as farms lose laborers and crops go unharvested. After its passing of strict anti-immigrant legislation in April, thousands of illegal workers have fled the state before the implementation of the law in July. This exodus of experienced farmhands meant 11,080  farm jobs left unfilled.

With a labor shortage to deal with, the government of the state of Georgia has a novel way of filling the vacancies: probationers. Atlanta also instituted a program to encourage those on probation to find work in the fields. Ex-cons, who find getting jobs difficult, aren’t exactly overjoyed at the opportunity, though. The grueling conditions and long hours of farm work discourage many new workers. Sometimes it only takes a few hours for them to quit.

Of course, the new workers cite wages as the reason for their high turnover rates, but you’ve got to wonder just how much would constitute “fair” pay. Whatever it is, it was high enough to make farmers turn to illegal workers in the first place. The lack of a stable workforce and skilled farmhands means less efficiency and less food. As food prices continue to rise, increasing the cost of labor on farms doesn’t sound like the smartest idea. The story’s too familiar though: politicians demagogue immigrants, then pass stupid bills, farmers complain, and almost everyone suffers.